Mets Owners Settle Madoff Trustee Case for $162 Million

By Bob Van Voris and Linda Sandler -
Mar 20, 2012

The $162 million settlement that
resolves claims by the liquidator of Bernard Madoff’s firm
against the owners of the New York Mets won’t require them to
pay any money for at least four years, if ever.

U.S. District Judge Jed Rakoff announced the settlement
today before the parties were set to pick a jury for a trial
over whether the Mets owners acted in bad faith when they
withdrew money from Madoff’s Ponzi scheme. Under the settlement,
Fred Wilpon, Saul Katz and related parties owe the Madoff estate
$162 million in fictitious profits, which may be totally or
partially offset by their own claims for $178 million in losses.

As part of the agreement, the liquidator, Irving Picard,
dropped his allegation that the Mets owners blinded themselves
to Madoff’s Ponzi scheme because it benefited their businesses.
Picard also gave up his demand that the Mets return money they
invested with Madoff and then withdrew.

“We were not willfully blind,” Wilpon said after a
hearing in Manhattan. “This settlement bears that out.”

Rakoff is making it harder for the trustee to use lawsuits
to pay other Madoff customers. The judge’s rulings on Picard’s
claims against the Mets owners, which he cut by about two thirds
from $1 billion originally, have spurred defendants in about 280
similar lawsuits to ask Rakoff to review the trustee’s claims
against them.

Other Suits

Rakoff said this month he would decide if Picard, in a $900
million lawsuit against defendants including Frank Avellino who
allegedly funneled money to the con man, “plausibly” suggested
willful blindness to the Ponzi scheme. Barclays Plc’s Swiss
affiliate wants a district judge to review a $67 million
lawsuit, saying it also raises “willful blindness” issues.

“Picard had to be concerned about whether he could secure
a favorable verdict from a jury,” said Michael Clark, a former
federal prosecutor at Duane Morris LLP in Houston who has tried
about 100 cases. A “bad result” might have emboldened
defendants in other clawback cases to resist settling, he said.

Rakoff and another district judge, Colleen McMahon, also
have tossed about $90 billion of Picard’s claims against banks
including JPMorgan Chase & Co. (JPM), HSBC Holdings Plc, UBS AG and
UniCredit SpA. (UCG) Picard is appealing most of the rulings.

Wilpon said he will fly to Florida, where the Mets are
holding spring training, with the goal of bringing the team
“back to the prominence that our fans deserve.” The Mets have
three wins and 11 losses through March 18 in spring training
games this year, last in the Grapefruit League.

The settlement was reached March 16, with the assistance of
former New York Governor Mario Cuomo, who acted as mediator in
the dispute. Rakoff must approve the deal for it to take effect.

Sword of Damocles

“Both sides helped their respective causes,” said Cuomo,
who played minor-league baseball for the Pittsburgh Pirates
organization. Picard recovered money for Madoff victims while
avoiding “a long, bitter expensive trial,” he said. The Mets
owners were able to remove “the sword of Damocles” hanging
over their heads and return to their business.

When asked if there was animosity between the parties in
the negotiations, Cuomo smiled, saying “When we’re confronted
by it, we ignore it.”

The settlement resembles other deals struck with Picard.
Under an agreement with Tremont Group Holdings Inc. last year,
$1 billion due to the Madoff estate would be offset by the hedge
fund firm’s $3 billion in claims, according to court filings.

Asked why Picard would settle with the Mets owners, Cuomo
said bills have been introduced in Congress, partly inspired by
the Mets case, that might “strip” the trustee of some of his
current powers.

Madoff Customers

The Mets negotiations began gaining momentum early last
week, according to lawyer David Sheehan, who represents Picard.
The parties finally reached a deal on the night of March 16, he
said.

“The settlement is for the benefit of all the customers,”
Sheehan said.

The trustee has struck similar deals with “other good
faith victims of the Madoff fraud,” Robert Wise, a lawyer for
the Mets owners, said as Wilpon and Katz emerged from the
courthouse.

Six Years

The settlement amount is equal to all of the profit
withdrawn by Katz and Wilpon and a group of related individuals,
family trusts and entities in the six years before Madoff’s
December 2008 arrest, Picard said in a statement. Rakoff had
ruled that Picard could only claim two years of profits, as much
as $83 million.

The main question for the trial was to have been whether
the owners acted in bad faith when they withdrew $303 million of
their own money from Bernard L. Madoff Investment Securities,
the brokerage Madoff used to run his swindle.

In the settlement, the Mets owners assign to Picard their
$178 million in claims against the Madoff estate. Katz and
Wilpon provided personal guarantees of $29 million in case
Picard is unable to collect the full $162 million agreed in the
settlement.

The amount Picard collects on the claims assigned to him by
the Wilpon group will be determined by the total amount Picard
collects on behalf of Madoff’s customers. Under the agreement,
Katz and Wilpon don’t have to dip into their own pockets for at
least four years.

Trial Opposed

The Mets owners had opposed a jury trial and tried
unsuccessfully to get the remaining claims brought by Picard
dismissed after Rakoff cut them back to $386 million from $1
billion.

Picard’s lawyers had said they were confident a jury would
find the Major League Baseball club’s owners deliberately
ignored the fraud because it benefited their businesses, ranging
from the team to real estate.

The Ponzi scheme cost investors an estimated $20 billion in
principal, according to Picard.

Madoff, 73, pleaded guilty in 2009 to orchestrating what
prosecutors called the biggest Ponzi scheme in history. He’s
serving a 150-year sentence in federal prison in North Carolina.
Picard and his law firm, Baker & Hostetler LLP (1155L), have charged
about $273 million in fees for liquidating the Madoff firm since
it collapsed in December 2008.

The first official word of the settlement came from Rakoff,
who had scheduled jury selection for today.

“It’s a lovely day for a trial,” Rakoff said after taking
the bench this morning. “But the parties have something else in
mind.”

The case is Picard v. Katz, 11-cv-03605, U.S. District
Court, Southern District of New York (Manhattan).